Existing law, the False Claims Act, provides that a person who commits any one of several enumerated acts relating to the submission to the state or a political subdivision of the state of a false claim for money, property, or services, as specified, shall be liable to the state or political subdivision for certain damages and a civil penalty. Existing federal law requires the Office of the Inspector General, in consultation with the United States Attorney General, to determine whether a state has a false claims act that qualifies the state for a 10-percentage-point increase under the Social Security Act in the states share of any amounts recovered under that law, by, among other things, imposing a civil penalty that is not less than the amount of the civil penalty authorized under the Federal False Claims Act. Existing federal law, the Federal Civil Penalties Inflation Adjustment Act of 1990, requires federal agencies to adjust the levels of civil monetary penalties for inflation to improve the effectiveness of civil monetary penalties and to maintain their deterrent effect.

This bill would specify that the fines imposed for violation of the False Claims Act shall be imposed as adjusted by the Federal Civil Penalties Inflation Adjustment Act of 1990.

Existing law, the False Claims Act, provides that a person who commits any one of several enumerated acts relating to the submission to the state or a political subdivision of the state of a false claim for money, property, or services, as specified, shall be liable to the state or political subdivision for certain damages and a civil penalty. Existing federal law requires the Office of the Inspector General, in consultation with the United States Attorney General, to determine whether a state has a false claims act that qualifies the state for a 10-percentage-point increase under the Social Security Act in the states share of any amounts recovered under that law, by, among other things, imposing a civil penalty that is not less than the amount of the civil penalty authorized under the Federal False Claims Act. Existing federal law, the Federal Civil Penalties Inflation Adjustment Act of 1990, requires federal agencies to adjust the levels of civil monetary penalties for inflation to improve the effectiveness of civil monetary penalties and to maintain their deterrent effect.

This bill would specify that the fines imposed for violation of the False Claims Act shall be imposed as adjusted by the Federal Civil Penalties Inflation Adjustment Act of 1990.

Existing law, the False Claims Act, provides that a person who commits any one of several enumerated acts relating to the submission to the state or a political subdivision of the state of a false claim for money, property, or services, as specified, shall be liable to the state or political subdivision for certain damages and a civil penalty. Existing federal law requires the Office of Inspector General, in consultation with the United States Attorney General, to determine whether a state has a false claims act that qualifies the state for a 10-percentage-point increase under the Social Security Act in the states share of any amounts recovered under that law, by, among other things, imposing a civil penalty that is not less than the amount of the civil penalty authorized under the Federal False Claims Act. Existing federal law, the Federal Civil Penalties Inflation Adjustment Act of 1990, requires federal agencies to adjust the levels of civil monetary penalties for inflation to improve the effectiveness of civil monetary penalties and to maintain their deterrent effect.

This bill would specify that the fines imposed for violation of the False Claims Act shall be imposed as adjusted by the Federal Civil Penalties Inflation Adjustment Act of 1990.

Date of Hearing: June 28, 2017

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez Fletcher, Chair

SBPCA Bill Id:SB 387

Author:(Jackson) – As Introduced Ver:February 14, 2017

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill provides that the amount of civil penalties for submitting a false or fraudulent claim to the state or any of its political subdivisions shall be aligned with the Federal Civil Penalties Inflation Adjustment Act of 1990.

FISCAL EFFECT:

1. An average of about $26 million annually in federal incentive funds will continue to be provided to the state as a result of this bill. These federal funds would cease in the absence of this bill.
2. Unknown increase in funds awarded to the state through civil penalties as a result of increasing the minimum and maximum penalty amounts to conform to the federal penalty levels.

COMMENTS:

1. Background. Under the California False Claims Act, any person who knowingly submits a false or fraudulent claim to the state is liable for three times the amount of damages suffered by the state or political subdivision, the costs of bringing the action, and a civil penalty of not less than $5,000 and not more than $11,000. Thus, the False Claims Act not only allows the state to recover money paid out to a fraudulent claimant, it also imposes a penalty in order to deter people from making false or fraudulent claims for public funds.

In 2005, the federal government created an incentive program for states to enact laws that impose civil liability for individuals or entities that submit false or fraudulent claims to a state Medicaid program since these costs are shared between the state and federal government. If a state qualifies for the incentive, the state is entitled to keep an additional 10% of the amount recovered through a Medicaid false claims case. The state qualifies for this incentive only if certain requirements are met, including imposing civil penalties that are not less than those imposed under federal law. California currently keeps an average of $26 million annually from Medicaid false claims cases as a result of this incentive.

1. Purpose. In December of 2016, the U.S. Department of Health and Human Services' Office of the Inspector General (OIG) informed the state that, as mandated by the Federal Civil Penalty Adjustment Act of 1990, the penalties under the Federal False Claims Act had, as of August 1, 2016, increased from a range of $5,000 to $11,000 per false claim to a range of $10,781 to $21,563 per false claim. The OIG noted that the California penalty is still set at the older rate and, accordingly, "your State statute is no longer in compliance" with the federal requirements for the incentive. The OIG stated that "California will be granted a grace period, ending December 31, 2018, to amend the California False Claims Act and resubmit to OIG for approval." This bill amends the California False Claims Act to index state penalties to the Federal Civil Penalties Inflation Adjustment Act of 1990 so that when the penalties under the Federal Claims Act increase, the penalties under the state law will also increase. In this way, the state will ensure that it continues to qualify for the 10% incentive and will not need to enact legislation each time that the federal penalty changes.

Analysis Prepared by: Jessica Peters / APPR. / (916) 319-2081

Date of Hearing: June 13, 2017

ASSEMBLY COMMITTEE ON JUDICIARY

Mark Stone, Chair

SBPCA Bill Id:SB 387

Author:(Jackson) – As Introduced Ver:February 14, 2017

PROPOSED CONSENT

SENATE VOTE: 36-0

SUBJECT: The False Claims Act

KEY ISSUE: Should California align and Index the penalty provisions in the State False claims act to those in the federal false claims act, to ensure that California continues to benefit from a federal recovery-sharing incentive that nets the state approximately $26 million per year?

SYNOPSIS

The California False Claims Act imposes liability on persons who present false or fraudulent claims to the state or any of its political subdivisions, including claims made to Medi-Cal, the state's Medicaid program. Because Medicaid/Medi-Cal is jointly funded by the federal and state governments, any amounts recovered under a state false claims action is shared with the federal government. However, as an incentive for states to enact robust false claim laws, the federal government allows a state to keep an additional 10% of any amounts recovered, so long as the state law meets certain criteria. One criterion is that the state law's civil penalties are not less than those imposed by the federal false claims statute. Because the federal fines were recently raised, this non-controversial aligns the penalty provisions of the California False Claims Act with the penalty provisions in the Federal False Claims Act so that the state may continue to benefit from the 10% incentive. The penalties were last raised by AB 2492 (Blumenfield, Ch. 647, Stats. 2012), which, like the bill under review, responded to an increase in the federal penalties in order to allow the state to continue receiving the 10% incentive. Rather than simply raise the state penalty amount once again to correspond with the new federal penalty, however, this bill would index the state penalty to the Federal Civil Penalties Inflation Adjustment Act, so that the state penalty will automatically increase with any future increase in the federal penalty. Therefore, this bill will not only ensure that the state will continue to benefit from the 10% incentive (which equates to about $26 million annually), it will also obviate the need for legislation each time the federal penalty is raised. The bill is supported by the California Attorney General's Office. There is no opposition to this sensible measure.

SUMMARY: Provides that the amount of civil penalties for submitting a false or fraudulent claim to the state or any of its political subdivisions shall be aligned with the Federal Civil Penalties Inflation Adjustment Act of 1990.

EXISTING LAW:

1. Provides an incentive to states to enact laws that establish liability to the State for individuals or entities that submit false or fraudulent claims to a state Medicaid program by increasing the state's share of amounts recovered under the state’s false claims act law by 10 percent. In order to qualify for this incentive, a state must satisfy certain requirements, including the imposing civil penalties for violations that are not less than the civil penalties imposed by the Federal False Claims Act. Requires the Office of Inspector General to determine, as specified, whether a state has a false claims act that qualifies for incentive. (42 U.S.C. Section 1396h.)
2. Requires federal agencies to adjust the levels of civil penalties for inflation to improve the effectiveness and deterrent effect of those civil monetary and to promote compliance with the law. (See notes to 28 U.S.C. Section 2461.)
3. Provides that a person who submits false or fraudulent claims to the state and its agencies, including claims made to California’s Medicaid program (Medi-Cal) shall be liable to the state or political subdivision for three times the amount of damages suffered by the state or political subdivision, as well as the costs of bringing the action and civil penalties of not less than $5,000 and not more than $11,000. (Government Code Section 12651.)

FISCAL EFFECT: As currently in print this bill is keyed fiscal.

COMMENTS: Under the California False Claims Act, any person who knowingly submits a false or fraudulent claim to the state is liable for three times the amount of damages suffered by the state or political subdivision, the costs of bringing the action, and a civil penalty of not less than $5,000 and not more than $11,000. The False Claims Act, therefore, not only allows the state to recover money paid out to a fraudulent claimant, it also imposes a penalty in order to deter people from making false or fraudulent claims for public funds.

In 2005, the federal government created an incentive program for states to enact laws that impose civil liability for individuals or entities that submit false or fraudulent claims to a state Medicaid program. Because Medicaid is jointly funded by the federal government and the individual states, a portion of the money collected under a state false claims act must be shared with the federal government. However, if a state qualifies for the incentive, the state is entitled to keep an additional 10% of the amount recovered. A state qualifies for this incentive only if the state’s law satisfies certain requirements, including imposing civil penalties that are not less than those imposed under federal law. According to the author's office, California keeps an additional $26 million annually because of this incentive.

In December of 2016, the U.S. Department of Health and Human Services' Office of the Inspector General (OIG) informed the state that, as mandated by the Federal Civil Penalty Adjustment Act of 1990, the penalties under the Federal False Claims Act had, as of August 1, 2016, increased from a range of $5,000 to $11,000 per false claim to a range of $10,781 to $21,563 per false claim. The OIG noted that the California penalty, as provided in Government Code Section 12651, is still set at the older rate and, accordingly, "your State statute is no longer in compliance" with the federal requirements for the incentive. The OIG stated that "California will be granted a grace period, ending December 31, 2018, to amend the California False Claims Act and resubmit to OIG for approval." (See Daniel Levinson, Inspector General, to Kamala Harris, California Attorney General, December 28, 2016, copy in possession of the Committee.)

This bill amends the California False Claims Act to index state penalties to the Federal Civil Penalties Inflation Adjustment Act of 1990 so that when the penalties under the Federal Claims Act increase, the penalties under the state law will also increase. In this way, the state will ensure that it will continue to qualify for the 10% incentive and will not need to enact legislation each time that the federal penalty changes.

ARGUMENTS IN SUPPORT: According to the author, this bill responds to the recent notification, made by the U.S. Department of Health and Human Services to former Attorney General Kamala Harris, that California is no longer in compliance with the Medicaid false claims incentive program because the state civil penalties have not increased to reflect penalty increases in the Federal False Claims Act. The state’s failure to conform with the federal law means that California will not be eligible for an incentive worth about $26 million annually. Specifically, the author writes: "SB 387 amends the penalty provisions of California’s False Claims Act by indexing our state penalties to the Federal Civil Penalties Inflation Adjustment Act of 1990. This change to existing law would increase the civil penalty for a violation of California’s act from between $5,000 and $11,000 to between $10,781 and $21,563 . . . This change ensures that California continues to receive federal incentive awards on Medicaid-related false claims recoveries, and prevents the issue of non-compliance from arising every time Congress increases the federal act’s penalties.”

The California Attorney General's Office supports this measure because it will "re-align the penalty provisions of the California False Claims Act . . . with those of the Federal False Claims Act . . . This realignment will allow California to continue receiving a 10% federal bonus for Medicaid-related false claim recoveries, valued at approximately $26 million per year . . . This change to existing law would effectively increase the civil penalty for a violation [to the current federal level] and would automatically provide for future adjustments to the penalty range in accordance with federal law."

Prior Related Legislation: AB 2492 (Blumenfield, Ch. 647, Stats. 2012), similar to SB 387, aligned state and federal penalties for false claims actions in order to retain the federal 10% incentive bonus for Medicare fraud recoveries. AB 2492 also modified the False Claims Act by, among other things, expanding certain whistleblower protections to include contractors and agents, and imposing a six-year statute of limitations for the Attorney General to file false claims actions. Unlike SB 387, however, AB 2492 did not index state penalties to federal penalties.

REGISTERED SUPPORT / OPPOSITION:

Support

California Office of the Attorney General

Opposition

None on file

Analysis Prepared by: Thomas Clark / JUD. / (916) 319-2334

 CONSENT 

Bill No: SB 387

Author: Jackson (D)

Introduced: 2/14/17

Vote: 21

SENATE JUDICIARY COMMITTEE: 7-0, 3/28/17

AYES: Jackson, Moorlach, Anderson, Hertzberg, Monning, Stern, Wieckowski

SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8

SUBJECT: The False Claims Act

SOURCE: Author

DIGEST: This bill re-aligns the civil penalty provisions of California’s False Claims Act with those of the Federal False Claims Act. This re-alignment will allow California to continue collecting a 10 percent federal incentive bonus for Medicaid-related false claim recoveries. This bill further provides for automatic adjustments to the penalty range in accordance with federal law by indexing California’s penalties to the Federal Civil Penalties Inflation Adjustment Act of 1990.

ANALYSIS:

Existing law:

1. Provides an incentive to states to enact laws that establish liability to the State for individuals or entities that submit false or fraudulent claims to a state Medicaid program. The incentive comes in the form of a 10-percentage-point increase under the Social Security Act in the state’s share of amounts recovered under the state’s false claims act law. A state qualifies for this incentive only if the state’s law satisfies certain requirements, including the imposition of civil penalties for violations of the law that are not less than the civil penalties imposed by the Federal False Claims Act. (42 U.S.C. Sec. 1396h.)
2. Requires the Office of Inspector General, in consultation with the United States Attorney General, to determine whether a state has a false claims act that qualifies the state for this incentive. (42 U.S.C. Sec. 1396h(b).)
3. Establishes, through the California False Claims Act, state civil liability for individuals and entities who submit false or fraudulent claims to the state and its agencies, including claims made to California’s Medicaid program (known as “Medi-Cal”). Existing law provides that any person who knowingly submits a false or fraudulent claim to the state is liable for three times the amount of damages suffered by the state or political subdivision, as well as costs and civil penalties. (Gov. Code Sec. 12650 et seq.)
4. Requires, under the Federal Civil Penalties Inflation Adjustment Act of 1990, federal agencies to adjust the levels of civil monetary penalties for inflation to improve the effectiveness of civil monetary penalties and to maintain their deterrent effect. (28 U.S.C. Sec. 2461 note; Public Law 104-410.)
5. Provides, pursuant to the Federal False Claims Act, for civil penalties as adjusted by the Federal Civil Penalties Inflation Adjustment Act of 1990. (31 U.S.C. Sec. 3729.)

This bill specifies that the fines imposed for violation of the California False Claims Act shall be imposed as adjusted by the Federal Civil Penalties Inflation Adjustment Act of 1990 bringing the penalty provision into alignment with the Federal False Claims Act.

Background

The Federal False Claims Act (Federal FCA) was enacted to combat fraud against the federal government and its myriad programs. It prohibits any person from “knowingly” presenting “a false or fraudulent claim for payment or approval” to the federal government. Any person found liable for violation of the Federal FCA is liable to the United States Government for civil penalties and treble damages, or three times the amount of damages sustained by the government as a result of the act. (31 U.S.C. Sec. 3729(a)(1).) The Federal FCA also contains a qui tam provision, allowing certain private persons to bring suit on behalf of themselves and the United States Government. Such private persons may be eligible for a certain percentage of the proceeds awarded as a result of the actions. (31 U.S.C. Sec. 3730.) The Federal FCA is widely hailed as the most effective and potent tool to detect, deter, and punish government fraud. The Federal Department of Justice obtained more than $4.7 billion in settlements and judgments from civil cases involving fraud and false claims against the government in fiscal year 2016.

The federal government provides an incentive for states to enact state analogues to the Federal FCA that meet certain requirements. A state qualifies for this incentive if its law: (1) “establishes liability to the State for false or fraudulent claims” connected to a state Medicaid program; (2) “contains provisions that are at least as effective in rewarding and facilitating qui tam actions for false or fraudulent claims” as the Federal FCA; (3) requires certain sealing and review procedures; and (4) “contains a civil penalty that is not less than the amount of the civil penalty” authorized by the Federal FCA. The incentive amounts to a ten percent bonus from the federal government that is added to any state false claims recovery involving the state Medicaid program.

The California False Claims Act (California FCA) establishes liability to the state for persons who commit certain enumerated acts relating to false claims submitted to the state. It provides for treble damages and civil penalties and also contains a qui tam provision. The California FCA largely tracks the prohibitions of the Federal FCA. (Gov. Code Sec. 12650 et seq.)

In order to maintain its entitlement to the federal incentive, California has periodically updated the California FCA to keep the penalty provision in line with the Federal FCA. Most recently, AB 2492 (Blumenfield, Chapter 647, Statutes of 2012), increased the penalty range for each violation to $5500-11,000. However, in December 2016, the Office of the Inspector General in the United States Department of Health and Human Services sent a letter to then Attorney General Kamala Harris notifying her that California’s law “is no longer in compliance.” The letter indicates that California has been granted a grace period, ending December 31, 2018, to amend its False Claims Act.^[1]

This bill brings the penalties provision of the California FCA in line with its federal counterpart, thereby ensuring California’s continued entitlement to the 10-percent bonus. Moreover, this bill indexes the penalty provision to the Federal FCA by similarly providing for automatic adjustments to the monetary penalty range by operation of the Federal Civil Penalties Inflation Adjustment Act of 1990.

Comments

According to the author:

In December of 2016, the U.S. Department of Health and Human Services notified California that the state is no longer in compliance with the Medicaid false claims incentive program because the civil penalties imposed by California’s False Claims Act have not increased alongside scheduled penalty increases for the Federal False Claims Act. California has been granted a grace period, ending December 31, 2018, to come into compliance, or forego future incentive payments under the program.

[This bill] amends the penalty provisions of California’s False Claims Act by indexing our state penalties to the Federal Civil Penalties Inflation Adjustment Act of 1990. This change to existing law would increase the civil penalty for a violation of California’s act from between $5,500 and $11,000 to between $10,781 and $21,563, and would automatically provide for future adjustments to the penalty range in accordance with federal law. This change ensures that California continues to receive federal incentive awards on Medicaid-related false claims recoveries, and prevents the issue of non-compliance from arising every time Congress increases the federal act’s penalties pursuant to the Federal Civil Penalties Inflation Adjustment Act.

Raising civil penalties results in a continued stream of revenue for California.

When California obtains a recovery as a result of a state action relating to false and/or fraudulent Medi-Cal claims, California must share the recovery with the Federal Government in the same proportion as the Federal medical assistance percentage. When the California FCA meets the requirements of the incentive program, the Federal medical assistance percentage will be decreased by 10 percentage points with respect to any amount recovered through a Medi-Cal-related state action brought under the California FCA. In other words, when eligible for the incentive, California increases its share of any recovery in such actions by taking 10 percent of the Federal Government’s “cut.”

Therefore, given the requirements of the program, failing to raise the civil penalties in the California FCA to ensure continued eligibility would likely result in the state losing out on tens of millions of dollars each year. Indeed, according to California Department of Justice statistics, California has obtained over $220 million for Medi-Cal through the incentive program averaging approximately $26 million annually.

Additionally, raising the civil penalties available under the statute increases the benefit to the state both by increasing the overall awards in false claims cases outside of the incentive bonus itself and by further incentivizing whistleblowers to continue to bring forward claims of fraud perpetrated against the state.

Automatic indexing obviates the need for further updates and fulfills the purpose of the statute.

Currently, the California FCA provides for civil penalties “not less than five thousand five hundred dollars ($5,500) and not more than eleven thousand dollars ($11,000) for each violation.” As indicated in the Office of Inspector General letter, as of August 2016, the Federal FCA increased its civil penalties from a range of $5,500 to $11,000 to a range of $10,781 to $21,563 for each violation. This clearly brings California out of compliance with the incentive program yet again. Instead of updating the California FCA by again stating the current exact dollar amount, this bill ties the civil penalties of the California FCA to the Federal Civil Penalties Inflation Adjustment Act. In so doing, California obviates the need to constantly pass legislation to update the civil penalties in order to maintain eligibility for the incentive program. The Federal FCA’s penalties provision contains the same index, providing for the civil penalty to be “adjusted by the Federal Civil Penalties Inflation Adjustment Act of 1990.” The two statutes will therefore automatically update by the same mechanism, ensuring continuing compliance with the incentive program.

In fact, in its letter to former Attorney General Kamala Harris, the Office of Inspector General specifically recommends that the California FCA penalty provision either tie its penalty to the federal inflation adjustments or simply reference directly to the Federal False Claims Act “rather than specifying an exact dollar amount of the civil penalties authorized under [the California FCA].”

The Federal Civil Penalties Inflation Adjustment Act of 1990 states:

The purpose of this Act is to establish a mechanism that shall- -

(1) allow for regular adjustment for inflation of civil monetary penalties;

(2) maintain the deterrent effect of civil monetary penalties and promote compliance with the law; and

(3) improve the collection by the Federal Government of civil monetary penalties.

Therefore, by linking the penalty provision of the California FCA to this act, California not only maintains its eligibility for the incentive bonus, but reaps the benefits of the Federal Civil Penalties Inflation Adjustment Act as detailed above. By keeping the civil penalties steady with inflation, California carries out the purpose of the California FCA, maintaining the law’s deterrent effect and properly incentivizing whistleblowers to bring forward claims of fraud perpetrated against the state. As the author indicates, this act is “California’s most powerful weapon to combat false or fraudulent claims for payments made to state and local governments.” Keeping the penalties current will enable the California FCA to continue serving this vital function.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

SUPPORT: (Verified 4/18/17)

Office of the Attorney General

OPPOSITION: (Verified 4/18/17)

None received

ARGUMENTS IN SUPPORT: The Office of Attorney General Xavier Becerra states that this bill places the California FCA in alignment with the Federal FCA allowing California to continue to receive the federal bonus, valued at approximately $26 million per year.

Prepared by: Christian Kurpiewski / JUD. / (916) 651-4113

4/19/17 14:47:59

**** END ****

1. See Office of Inspector General, letter to Attorney General Kamala Harris, Dec. 28, 2016, <https://oig.hhs.gov/fraud/docs/falseclaimsact/California.pdf> [as of Mar. 15, 2017]. ↑

SENATE JUDICIARY COMMITTEE

Senator Hannah-Beth Jackson, Chair

2017-2018 Regular Session

Bill No: SB 387 (Author:Jackson)

Version: February 14, 2017

Hearing Date: March 28, 2017

Fiscal: Yes

Urgency: No

Consultant: CK

SUBJECT

The False Claims Act

DESCRIPTION

This bill would re-align the civil penalty provisions of California’s False Claims Act with those of the Federal False Claims Act. This re-alignment will allow California to continue collecting a 10 percent federal incentive bonus for Medicaid-related false claim recoveries. This bill would further provide for automatic adjustments to the penalty range in accordance with federal law by indexing California’s penalties to the Federal Civil Penalties Inflation Adjustment Act of 1990.

BACKGROUND

The Federal False Claims Act (Federal FCA) was enacted to combat fraud against the federal government and its myriad programs. It prohibits any person from “knowingly” presenting “a false or fraudulent claim for payment or approval” to the federal government. Any person found liable for violation of the Federal FCA is liable to the United States Government for civil penalties and treble damages, or three times the amount of damages sustained by the government as a result of the act. (31 U.S.C. Sec. 3729(a)(1).) The Federal FCA also contains a qui tam provision, allowing certain private persons to bring suit on behalf of themselves and the United States Government. Such private persons may be eligible for a certain percentage of the proceeds awarded as a result of the actions. (31 U.S.C. Sec. 3730.) The Federal FCA is widely hailed as the most effective and potent tool to detect, deter, and punish government fraud. The Federal Department of Justice obtained more than $4.7 billion in settlements and judgments from civil cases involving fraud and false claims against the government in fiscal year 2016.

The federal government provides an incentive for states to enact state analogues to the Federal FCA that meet certain requirements. A state qualifies for this incentive if its law: (1) “establishes liability to the State for false or fraudulent claims” connected to a state Medicaid program; (2) “contains provisions that are at least as effective in rewarding and facilitating qui tam actions for false or fraudulent claims” as the Federal FCA; (3) requires certain sealing and review procedures; and (4) “contains a civil penalty that is not less than the amount of the civil penalty” authorized by the Federal FCA. The incentive amounts to a ten percent bonus from the federal government that is added to any state false claims recovery involving the state Medicaid program.

The California False Claims Act (California FCA) establishes liability to the state for persons who commit certain enumerated acts relating to false claims submitted to the state. It provides for treble damages and civil penalties and also contains a qui tam provision. The California FCA largely tracks the prohibitions of the Federal FCA. (Gov. Code Sec. 12650 et seq.)

In order to maintain its entitlement to the federal incentive, California has periodically updated the California FCA to keep the penalty provision in line with the Federal FCA. Most recently, AB 2492 (Blumenfield, Ch. 647, Stats. 2012), increased the penalty range for each violation to $5500-11,000. However, in December 2016, the Office of the Inspector General in the United States Department of Health and Human Services sent a letter to then Attorney General Kamala Harris notifying her that California’s law “is no longer in compliance.” The letter indicates that California has been granted a grace period, ending December 31, 2018, to amend its False Claims Act.^[1]

This bill would bring the penalties provision of the California FCA in line with its federal counterpart, thereby ensuring California’s continued entitlement to the 10-percent bonus. Moreover, this bill would index the penalty provision to the Federal FCA by similarly providing for automatic adjustments to the monetary penalty range by operation of the Federal Civil Penalties Inflation Adjustment Act of 1990.

CHANGES TO EXISTING LAW

Existing federal law provides an incentive to states to enact laws that establish liability to the State for individuals or entities that submit false or fraudulent claims to a state Medicaid program. The incentive comes in the form of a 10-percentage-point increase under the Social Security Act in the state’s share of amounts recovered under the state’s false claims act law. A state qualifies for this incentive only if the state’s law satisfies certain requirements, including the imposition of civil penalties for violations of the law that are not less than the civil penalties imposed by the Federal False Claims Act. (42 U.S.C. Sec. 1396h.)

Existing federal law requires the Office of Inspector General, in consultation with the United States Attorney General, to determine whether a state has a false claims act that qualifies the state for this incentive. (42 U.S.C. Sec. 1396h(b).)

Existing law, the California False Claims Act, establishes state civil liability for individuals and entities who submit false or fraudulent claims to the state and its agencies, including claims made to California’s Medicaid program (known as “Medi-Cal”). Existing law provides that any person who knowingly submits a false or fraudulent claim to the state is liable for three times the amount of damages suffered by the state or political subdivision, as well as costs and civil penalties. (Gov. Code Sec. 12650 et seq.)

Existing federal law, the Federal Civil Penalties Inflation Adjustment Act of 1990, requires federal agencies to adjust the levels of civil monetary penalties for inflation to improve the effectiveness of civil monetary penalties and to maintain their deterrent effect. (28 U.S.C. Sec. 2461 note; Public Law 104-410.)

Existing federal law, the Federal False Claims Act, provides for civil penalties as adjusted by the Federal Civil Penalties Inflation Adjustment Act of 1990. (31 U.S.C. Sec. 3729.)

This bill would specify that the fines imposed for violation of the California False Claims Act shall be imposed as adjusted by the Federal Civil Penalties Inflation Adjustment Act of 1990 bringing the penalty provision into alignment with the Federal False Claims Act.

COMMENT

1. Stated need for the bill

According to the author:

In December of 2016, the U.S. Department of Health and Human Services notified California that the state is no longer in compliance with the Medicaid false claims incentive program because the civil penalties imposed by California’s False Claims Act have not increased alongside scheduled penalty increases for the Federal False Claims Act. California has been granted a grace period, ending December 31, 2018, to come into compliance, or forego future incentive payments under the program.

[This bill] amends the penalty provisions of California’s False Claims Act by indexing our state penalties to the Federal Civil Penalties Inflation Adjustment Act of 1990. This change to existing law would increase the civil penalty for a violation of California’s act from between $5,500 and $11,000 to between $10,781 and $21,563, and would automatically provide for future adjustments to the penalty range in accordance with federal law. This change ensures that California continues to receive federal incentive awards on Medicaid-related false claims recoveries, and prevents the issue of non-compliance from arising every time Congress increases the federal act’s penalties pursuant to the Federal Civil Penalties Inflation Adjustment Act.

Writing in support, the Office of Attorney General Xavier Becerra states that this bill would place the California FCA in alignment with the Federal FCA allowing California to continue to receive the federal bonus, valued at approximately $26 million per year.

2. Raising civil penalties results in a continued stream of revenue for California

When California obtains a recovery as a result of a state action relating to false and/or fraudulent Medi-Cal claims, California must share the recovery with the Federal Government in the same proportion as the Federal medical assistance percentage. When the California FCA meets the requirements of the incentive program, the Federal medical assistance percentage will be decreased by 10 percentage points with respect to any amount recovered through a Medi-Cal-related state action brought under the California FCA. In other words, when eligible for the incentive, California increases its share of any recovery in such actions by taking 10 percent of the Federal Government’s “cut.”

Therefore, given the requirements of the program, failing to raise the civil penalties in the California FCA to ensure continued eligibility would likely result in the state losing out on tens of millions of dollars each year. Indeed, according to California Department of Justice statistics, California has obtained over $220 million for Medi-Cal through the incentive program averaging approximately $26 million annually.

Additionally, raising the civil penalties available under the statute increases the benefit to the state both by increasing the overall awards in false claims cases outside of the incentive bonus itself and by further incentivizing whistleblowers to continue to bring forward claims of fraud perpetrated against the state.

3. Automatic indexing obviates the need for further updates and fulfills the purpose of the statute

Currently, the California FCA provides for civil penalties “not less than five thousand five hundred dollars ($5,500) and not more than eleven thousand dollars ($11,000) for each violation.” As indicated in the Office of Inspector General letter, as of August 2016, the Federal FCA increased its civil penalties from a range of $5,500 to $11,000 to a range of $10,781 to $21,563 for each violation. This clearly brings California out of compliance with the incentive program yet again. Instead of updating the California FCA by again stating the current exact dollar amount, this bill would tie the civil penalties of the California FCA to the Federal Civil Penalties Inflation Adjustment Act. In so doing, California would obviate the need to constantly pass legislation to update the civil penalties in order to maintain eligibility for the incentive program. The Federal FCA’s penalties provision contains the same index, providing for the civil penalty to be “adjusted by the Federal Civil Penalties Inflation Adjustment Act of 1990.” The two statutes would therefore automatically update by the same mechanism, ensuring continuing compliance with the incentive program.

In fact, in its letter to former Attorney General Kamala Harris, the Office of Inspector General specifically recommends that the California FCA penalty provision either tie its penalty to the federal inflation adjustments or simply reference directly to the Federal False Claims Act “rather than specifying an exact dollar amount of the civil penalties authorized under [the California FCA].”

The Federal Civil Penalties Inflation Adjustment Act of 1990 states:

The purpose of this Act is to establish a mechanism that shall- -

(1) allow for regular adjustment for inflation of civil monetary penalties;

(2) maintain the deterrent effect of civil monetary penalties and promote compliance with the law; and

(3) improve the collection by the Federal Government of civil monetary penalties.

Therefore, by linking the penalty provision of the California FCA to this act, California not only maintains its eligibility for the incentive bonus, but reaps the benefits of the Federal Civil Penalties Inflation Adjustment Act as detailed above. By keeping the civil penalties steady with inflation, California carries out the purpose of the California FCA, maintaining the law’s deterrent effect and properly incentivizing whistleblowers to bring forward claims of fraud perpetrated against the state. As the author indicates, this act is “California’s most powerful weapon to combat false or fraudulent claims for payments made to state and local governments.” Keeping the penalties current will enable the California FCA to continue serving this vital function.

Support: Office of the Attorney General

Opposition: None Known

HISTORY

Source: Author

Related Pending Legislation: None Known

Prior Legislation: AB 2492 (Blumenfield, Ch. 647, Stats. 2012)

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1. See Office of Inspector General, letter to Attorney General Kamala Harris, Dec. 28, 2016, <https://oig.hhs.gov/fraud/docs/falseclaimsact/California.pdf> [as of Mar. 15, 2017]. ↑